-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A1O3mPdPDp8P3h98cwpFW3DpC8MvW7lwQoOLJ4uuMSO15XPX1NVLt2GAYmuxvlg5 WXUrFjs/5t8nn93UHkh6sQ== 0000047035-97-000008.txt : 19970612 0000047035-97-000008.hdr.sgml : 19970612 ACCESSION NUMBER: 0000047035-97-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19970504 FILED AS OF DATE: 19970611 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERLEY INDUSTRIES INC /NEW CENTRAL INDEX KEY: 0000047035 STANDARD INDUSTRIAL CLASSIFICATION: SEARCH, DETECTION, NAVIGATION, GUIDANCE, AERONAUTICAL SYS [3812] IRS NUMBER: 232413500 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-05411 FILM NUMBER: 97622175 BUSINESS ADDRESS: STREET 1: 10 INDUSTRY DR CITY: LANCASTER STATE: PA ZIP: 17603 BUSINESS PHONE: 7173972777 MAIL ADDRESS: STREET 1: 10 INDUSTRY DRIVE CITY: LANCASTER STATE: PA ZIP: 17603 FORMER COMPANY: FORMER CONFORMED NAME: HERLEY MICROWAVE SYSTEMS INC DATE OF NAME CHANGE: 19900510 FORMER COMPANY: FORMER CONFORMED NAME: HERLEY INDUSTRIES INC DATE OF NAME CHANGE: 19831103 10-Q 1 QUARTERLY REPORT FOR 13 WEEKS ENDED MAY 4, 1997 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended: May 4, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ---------------- to ------------------ Commission File Number 0-5411 HERLEY INDUSTRIES, INC. (Exact name of registrant as specified in its charter) DELAWARE #23-2413500 - -------------------------------- ----------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 10 Industry Drive, Lancaster, Pennsylvania 17603 - ------------------------------------------ -------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code: (717) 397-2777 - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. [ ] Yes [ ] No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of June 3, 1997 - 3,019,225 shares of Common Stock. HERLEY INDUSTRIES, INC AND SUBSIDIARIES INDEX TO FORM 10-Q PART I - FINANCIAL INFORMATION PAGE Item 1 - Financial Statements: Consolidated Balance Sheets - May 4, 1997 and July 28, 1996 2 Consolidated Statements of Operations - For the thirteen and forty weeks ended May 4, 1997, and the thirteen and thirty-nine weeks ended April 28, 1996 3 Consolidated Statements of Cash Flows - For the thirteen and forty weeks ended May 4, 1997, and the thirteen and thirty-nine weeks ended April 28, 1996 4 Notes to Consolidated Financial Statements 5 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II -OTHER INFORMATION 8 Signatures 10 Computation of per share earnings 11 HERLEY INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS May 4, July 28, 1997 1996 ----------- ----------- (Unaudited) (Audited) ASSETS Current Assets: Cash and cash equivalents $ 627,276 $ 1,104,445 Accounts receivable 5,734,080 3,249,225 Notes receivable-officers 2,066,009 2,083,543 Other receivables 133,882 124,992 Inventories 9,107,668 8,010,687 Deferred taxes and other 1,949,436 1,689,988 ---------- ----------- Total Current Assets 19,618,351 16,262,880 Property, Plant and Equipment, net 11,813,751 12,579,044 Intangibles, net of amortization 4,376,161 4,580,236 Available-for-sale Securities - 4,912,387 Other Investments 1,000,000 3,000,000 Other Assets 1,509,993 1,174,395 ========== =========== $ 38,318,256 $ 42,508,942 ========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 1,146,000 $ 300,000 Accounts payable and accrued expenses 4,413,044 5,123,868 Billings in excess of costs and earnings on contracts in process 108,865 - Income taxes payable 229,226 166,295 Reserve for contract losses 268,350 489,110 Advance payments on contracts 2,559,059 1,480,033 ---------- ---------- Total Current Liabilities 8,724,544 7,559,306 ---------- ---------- Long-term Debt 3,225,000 11,021,000 Deferred Income Taxes 2,090,975 1,923,058 Excess of fair value of net assets of business acquired over cost, net of amortization 608,542 973,667 ---------- ---------- 14,649,061 21,477,031 ---------- ---------- Commitments and Contingencies Shareholders' Equity: Common stock, $.10 par value; authorized 10,000,000 shares; issued 3,102,878 at May 4, 1997 and 2,936,122 at July 28, 1996 310,288 293,612 Additional paid-in capital 10,967,561 11,448,827 Retained earnings 12,391,346 9,289,472 ---------- ---------- Total Shareholders' Equity 23,669,195 21,031,911 ========== ========== $ 38,318,256 $ 42,508,942 ========== ========== The accompanying notes are an integral part of these financial statements. 2 HERLEY INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Thirteen weeks ended -------------------- 40 weeks ended 39 weeks ended May 4, April 28, May 4, April 28, 1997 1996 1997 1996 ------------ ------------ ------------ ------------ Net sales $ 8,426,047 $ 7,236,163 $ 23,080,159 $ 21,496,209 ------------ ------------ ------------ ------------ Cost and expenses: Cost of products sold 5,278,289 4,929,063 15,365,629 14,845,965 Selling and administrative expenses 1,531,622 1,356,834 4,282,832 4,312,740 ------------ ------------ ------------ ------------ 6,809,911 6,285,897 19,648,461 19,158,705 ------------ ------------ ------------ ------------ Operating income 1,616,136 950,266 3,431,698 2,337,504 ------------ ------------ ------------ ------------ Other income (expense): Gain (loss) on sale of available-for-sale securities and other investments 80,630 (131,211 95,897 1,033,786 Dividend and interest income 62,156 126,322 200,041 288,716 Interest expense (125,955) (167,900 (443,362) (613,449 ------------ ------------ ------------ ------------ 16,831 (172,789 (147,424) 709,053 ------------ ------------ ------------ ------------ Income before income taxes 1,632,967 777,477 3,284,274 3,046,557 Provision for income taxes 182,400 -- 182,400 216,100 ------------ ------------ ------------ ------------ Net income $ 1,450,567 $ 777,477 $ 3,101,874 $ 2,830,457 ============ ============ ============ ============ Earnings per common and common equivalent share $ .41 $ .26 $ .88 $ .86 ============ ============ ============ ============ Earnings per common share - assuming full dilution $ .41 $ .25 $ .88 $ .83 ============ ============ ============ ============ Weighted average number of common and common equivalent shares outstanding 3,513,084 3,019,108 3,535,588 3,367,704 ============ ============ ============ ============ Weighted average number of common shares outstanding - assuming full dilution 3,513,084 3,156,902 3,535,588 3,421,271 ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. 3 HERLEY INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
40 weeks ended 39 weeks ended May 4, April 28, 1997 1996 ----------- ----------- Cash flows from operating activities: Net income $ 3,101,874 $ 2,830,457 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,159,504 1,165,013 Gain on sale of available-for-sale securities and other investments (96,070) (1,033,786) Decrease in deferred tax assets -- 123,555 Increase in deferred tax liabilities 167,917 130,855 Changes in operating assets and liabilities: Decrease (increase) in accounts receivable (2,484,855) 326,197 Decrease (increase) in notes receivable-officers 17,534 (2,052,284) (Increase) in other receivables (8,890) (9,173) Decrease (increase) in inventories (1,096,981) 1,045,484 (Increase) in deferred taxes and other (259,448) (314,782) (Decrease) in accounts payable and accrued expenses (710,824) (540,959) Increase in billings in excess of costs and earnings on contracts in process 108,865 -- Increase in income taxes payable 62,931 268,127 Increase (decrease) in reserve for contract losses (220,760) 4,210 Increase in advance payments on contracts 1,079,026 771,244 Other, net (356,365) (53,999) ----------- ----------- Total adjustments (2,638,416) (170,298) ----------- ----------- Net cash provided by operating activities 463,458 2,660,159 ----------- ----------- Cash flows from investing activities: Purchase of available-for-sale securities (159,364) (8,500,471) Purchase of other investment -- (2,000,000) Proceeds from sale of available-for-sale securities 5,083,908 7,536,619 Proceeds from sale of other investments 2,080,630 3,823,233 Proceeds from sale of fixed assets 9,392 -- Capital expenditures (540,603) (415,334) ----------- ----------- Net cash provided by investing activities 6,473,963 444,047 ----------- ----------- Cash flows from financing activities: Borrowings under bank line of credit 2,325,000 7,875,000 Proceeds from exercise of stock options 214,063 77,070 Payments under lines of credit (9,275,000) (9,225,000) Payments of long-term debt -- (35,264) Purchase of treasury stock (678,653) (1,490,861) ----------- ----------- Net cash (used in) financing activities (7,414,590) (2,799,055) ----------- ----------- Net increase (decrease) in cash and cash equivalents (477,169) 305,151 Cash and cash equivalents at beginning of period 1,104,445 272,755 ----------- ----------- Cash and cash equivalents at end of period $ 627,276 $ 577,906 =========== ===========
The accompanying notes are an integral part of these financial statements. 4 Herley Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Unaudited) 1. The consolidated financial statements include the accounts of Herley Industries, Inc. and its subsidiaries, all of which are wholly-owned. All significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of the Company, the accompanying consolidated financial statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the results of operations and cash flows for the periods presented. These financial statements (except for the balance sheet presented at July 28, 1996) are unaudited and have not been reported on by independent public accountants. Results of operations for interim periods are not necessarily indicative of the results of operations for a full year due to external factors which are beyond the control of the Company. 2. Inventories at May 4, 1997 and July 28,1996 are summarized as follows: May 4, 1997 July 28,1996 ----------- ------------ Purchased parts and raw materials $ 4,258,122 $ 3,358,256 Work in process 4,707,589 4,580,538 Finished products 141,957 71,893 ---------- ----------- $ 9,107,668 $ 8,010,687 ========= ========= 3. The following is a summary of available-for-sale securities at July 28, 1996: Gross Gross Estimated Unrealized Unrealized Fair Cost Gains Losses Value ----------- ----------- ---------- ----------- Government bonds $ 3,783,402 $ - $ - $ 3,783,402 Other 1,125,700 - - 1,125,700 --------- ---------- --------- --------- Total debt securities 4,909,102 - - 4,909,102 Equity securities 3,285 - - 3,285 ---------- ---------- --------- --------- $ 4,912,387 $ - $ - $ 4,912,387 ========= ========== ========= ========= The Company liquidated all of its available-for-sale securities during the first quarter and used the proceeds to pay down its bank debt. 4. In January 1997, the Company renewed its revolving credit agreement with a bank that provides for the extension of credit in the aggregate principal amount of $11,000,000 and may be used for general corporate purposes, including business acquisitions. The facility requires the payment of interest only on a monthly basis and payment of the outstanding principal balance on January 31, 1999. Interest is at 1% over the FOMC Target Rate applied to outstanding balances up to 80% of the net equity value of available-for-sale securities, and at the bank's Base Rate for outstanding balances in excess of this limit. Their were no borrowings outstanding at May 4, 1997. The premium rate portion of the facility would be secured by any available-for-sale securities. The credit facility also provides for the issuance of stand-by letters of credit with a fee of 1.0% per annum of the amounts outstanding under the facility. At May 4, 1997, stand-by letters of credit aggregating $2,904,492 were outstanding. 5 The agreement contains various financial covenants, including, among other matters, the maintenance of working capital, tangible net worth, and restrictions on cash dividends. 5. The 1997 income tax provision reflects the utilization of prior year net operating loss carryforwards and elimination of the valuation allowance for net operating loss carryforwards expected to be realized. 6. Supplemental cash flow information is as follows: 40 weeks ended 39 weeks ended May 4, April 28, 1997 1996 ------------ ------------ Cash paid during the period for: Interest $ 382,225 $ 562,048 Income Taxes 156,027 16,931 Cashless exercise of stock options $ 1,884,708 $ - 6 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources As of May 4, 1997 and July 28, 1996, working capital was approximately $10,894,000 and $8,704,000, respectively, and the ratio of current assets to current liabilities was 2.25 to 1 and 2.15 to 1, respectively. As is customary in the defense industry, inventory is partially financed by progress payments. The unliquidated balance of these advanced payments was approximately $2,559,000 at May 4, 1997, and $1,480,000 at July 28, 1996, an increase of $1,079,000 during the period. Net cash provided by operations during the quarter was approximately $463,000. Net cash provided from investing activities of approximately $6,474,000 during the period results primarily from the liquidation of all of the available-for-sale securities and the sale of the Company's limited partnership interest in M.D. SASS RE/ENTERPRISE II, L.P. The Company used the proceeds to pay off its long term bank debt. The Company maintains a revolving credit facility with a bank for an aggregate of $11,000,000 which expires January 31, 1999. As of July 28, 1996, the Company had borrowings outstanding of $6,950,000. There were no amounts outstanding at May 4, 1997. At May 4, 1997, the Company had cash and cash equivalents of approximately $627,000. The Company believes that presently anticipated future cash requirements will be provided by internally generated funds, and existing credit facilities. The Board of Directors has authorized the purchase of up to an aggregate of 300,000 shares of the Company's common stock from time to time, at prevailing market prices, in the open market or in private transactions. The Company purchased 68,900 shares during the quarter ended May 4, 1997 at an aggregate cost of $678,653. Results of Operations Thirteen weeks ended May 4, 1997 and April 28, 1996 Net sales for the thirteen weeks ended May 4, 1997 were $8,426,000 as compared to $7,236,000 (an increase of 16%) in the comparable period of the prior year. Cost of products sold for the thirteen weeks ended May 4, 1997 decreased as a percentage of net sales from 68% in 1996 to 63% in 1997. This decrease is attributable to more aggressive pricing and higher absorption of overhead due to the higher sales volume, as well as control of variable costs. Selling and administrative expenses for the thirteen weeks ended May 4, 1997 increased by $175,000 as compared to the prior year third quarter. The increase is attributable primarily to a provision for settlement costs, including legal fees, of approximately $150,000 in connection with a legal action. Other income for the thirteen weeks ended May 4, 1997 increased $190,000 over the prior year due to net gains on the sale of a partnership interest in M. D. SASS RE/ENTERPRISE II, L.P., and a decrease in interest expense of $42,000; offset by a reduction in investment income of $64,000. The 1997 income tax provision recorded in the thirteen weeks ended May 4, 1997 reflects the utilization 7 of prior year net operating loss carryforwards and elimination of the valuation allowance for net operating loss carryforwards expected to be realized. Forty weeks ended May 4, 1997 and thirty-nine weeks ended April 28, 1996 Net sales for the forty weeks ended May 4, 1997 increased by approximately $1,584,000 or 7%. Cost of products sold for the forty weeks ended May 4, 1997 decreased as a percentage of net sales from 69% in 1996 to 67% in 1997. This decrease is attributable to higher margins due to more aggressive pricing, and higher absorption of overhead due to the sales volume, as well as control of variable costs. Selling and administrative expenses for the forty weeks ended May 4, 1997 decreased approximately $30,000 as compared to the prior year. The net decrease is attributable to the reduction in representation fees and commissions of approximately $400,000; offset by a provision for settlement costs, including legal fees, of approximately $260,000 in connection with a legal action, and increased consulting services of approximately $80,000. Other (expense) for the forty weeks ended May 4, 1997 increased approximately $856,000 from the prior year period due to net gains on the sale of a partnership interest in M. D. SASS RE/ENTERPRISE PARTNERS, L.P. and other marketable securities of approximately $1,165,000 in 1996 and an $89,000 decrease in investment income in 1997; offset by a decrease in interest expense of $170,000, and a gain of $81,000 from the sale of a partnership interest in M.D. SASS RE/ENTERPRISE II, L.P. in the third quarter of 1997. PART I I - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS: In May, 1995, the Company was served with a Class Action Complaint against the Company and its Chief Executive Officer in the United States District Court for the Eastern District of Pennsylvania. The claim was made under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10(b)-5 thereunder. The claim relates to the Company's settlement of the Litton Action in the Essex Superior Court of Massachusetts and alleges, inter alia, that there was insufficient disclosure by the Company of its true potential exposure in that claim. In January, 1997 the parties negotiated a settlement of all claims in consideration for a payment of $170,000. On April 8 the Court entered an Order with Respect to Proposed Settlement of Class Action preliminarily approving the settlement and proposed notice and setting times for objections. A hearing is scheduled for July 2, 1997 to determine whether the proposed settlement should be approved and to award counsel fees and costs. ITEM 2 - CHANGES IN SECURITIES: None ITEM 3 - DEFAULTS UPON SENIOR SECURITIES: None ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: None 8 ITEM 5 - OTHER INFORMATION: None ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K: (a) EXHIBITS 10.1 1997 Stock Option Plan. 10.2 Employment Agreement between Herley Industries, Inc. and Lee N. Blatt dated as of January 1, 1997. 10.3 Employment Agreement between Herley Industries, Inc. and Myron Levy dated as of January 1, 1997. 10.4 Revised Non-Negotiable Promissory Note of Lee N. Blatt dated June 2, 1997. 10.5 Revised Non-Negotiable Promissory Note of Gerald I. Klein dated June 2, 1997. 10.6 Revised Non-Negotiable Promissory Note of Myron Levy dated June 2, 1997. 11 Computation of per share earnings. 27 Financial Data Schedule (for electronic filing only). (b) During the quarter for which this report is filed, the Registrant filed the following reports under Form 8-K: None 9 FORM 10-Q SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HERLEY INDUSTRIES, INC. ----------------------- (Registrant) BY: /S/ Myron Levy ---------------------- Myron Levy, President BY: /S/ Anello C. Garefino --------------------------- Anello C. Garefino, Principal Financial Officer DATE: June 10, 1997 10 EX-10 2 10.1 1997 STOCK OPTION PLAN Exhibit 10.1 HERLEY INDUSTRIES, INC. 1997 Stock Option Plan SECTION 1. GENERAL PROVISIONS 1.1. Name and General Purpose The name of this plan is the Herley Industries, Inc. 1997 Stock Option Plan (hereinafter called the "Plan"). The purpose of the Plan is to enable Herley Industries, Inc. (the "Company") and its subsidiaries and affiliates to foster and promote the interests of the Company by attracting and retaining officers and employees of the Company who contribute to the Company's success by their ability, ingenuity and industry, to enable such officers and employees of the Company to participate in the long-term success and growth of the Company by giving them a proprietary interest in the Company and to provide incentive compensation opportunities competitive with those of competing corporations. 1.2 Definitions a. "Affiliate" means any person or entity controlled by or under common control with the Company, by virtue of the ownership of voting securities, by contract or otherwise. b. "Board" means the Board of Directors of the Company. c. "Change in Control" means a change of control of the Company, or in any person directly or indirectly controlling the Company, which shall mean: (a) a change in control as such term is presently defined in Regulation 240.12b-(f) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (b) if any "person" (as such term is used in Section 13(d) and 14(d) of the Exchange Act) other than the Company or any "person" who on the date of this Agreement is a director or officer of the Company, becomes the "beneficial owner" (as defined in Rule 13(d)-3 under the Exchange Act) directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the voting power of the Company's then outstanding securities; or (c) if during any period of two (2) consecutive years during the term of this Plan, individuals who at the beginning of such period constitute the Board of Directors, cease for any reason to constitute at least a majority thereof. d. "Code" means the Internal Revenue Code of 1986, as amended. e. "Committee" means the Committee referred to in Section 1.3 of the Plan. f. "Common Stock" means shares of the Common Stock, par value $.10 per share, of the Company. g. "Company" means Herley Industries, Inc., a corporation organized under the laws of the State of Delaware (or any successor corporation). h. "Fair Market Value" means the market price of the Common Stock on the National Association of Securities Dealers Automated Quotation ("NASDAQ") system on the date of the grant or on any other date on which the Common Stock is to be valued hereunder. If no sale shall have been reported on NASDAQ on such date, Fair Market Value shall be determined by the Committee in accordance with the Treasury Regulations applicable to incentive stock options under Section 422 of the Code. i "Incentive Stock Option" means an Incentive Stock Option as described in Section 2.1 of the ---------------------- Plan. j. "Non-Employee Director" shall have the meaning set forth in Rule 16(b) promulgated by the Securities and Exchange Commission ("Commission"). k. "Non-Qualified Stock Option" means a Non-Qualified Stock Option as described in Section 2.1 of the Plan. l. "Option" means any option to purchase Common Stock under Section 2 of the Plan. m. "Participant" means any officer or employee of the Company, a Subsidiary or an Affiliate who is selected by the Committee to participate in the Plan. n. "Subsidiary" means any corporation in which the Company possesses directly or indirectly 50% or more of the combined voting power of all classes of stock of such corporation. o. "Total Disability" means accidental bodily injury or sickness which wholly and continuously disabled an optionee. The Committee, whose decisions shall be final, shall make a determination of Total Disability. 1.3 Administration of the Plan The Plan shall be administered by the Committee appointed by the Board consisting of two or more members of the Board all of who shall be Non-Employee Directors. The Committee shall serve at the pleasure of the Board and shall have such powers as the Board may, from time to time, confer upon it. Subject to this Section 1.3, the Committee shall have sole and complete authority to adopt, alter, amend or revoke such administrative rules, guidelines and practices governing the operation of the Plan as it shall, from time to time, deem advisable, and to interpret the terms and provisions of the Plan. The Committee shall keep minutes of its meetings and of action taken by it without a meeting. A majority of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by all of the members of the Committee without a meeting, shall constitute the acts of the Committee. -2- 1.4 Eligibility Stock options may be granted only to officers or employees of the Company or a Subsidiary or Affiliate. Subject to Section 2.3, any person who has been granted any Option may, if he is otherwise eligible, be granted an additional Option or Options. 1.5 Shares The aggregate number of shares reserved for issuance pursuant to the Plan shall be 1,250,000 shares of Common Stock, or the number and kind of shares of stock or other securities which shall be substituted for such shares or to which such shares shall be adjusted as provided in Section 1.6. Such number of shares may be set aside out of the authorized but unissued shares of Common Stock or out of issued shares of Common Stock acquired for and held in the Treasury of the Company, not reserved for any other purpose. Shares subject to, but not sold or issued under, any Option terminating or expiring for any reason prior to its exercise in full will again be available for Options thereafter granted during the balance of the term of the Plan. 1.6 Adjustments Due to Stock Splits, Mergers, Consolidation, Etc. If, at any time, the Company shall take any action, whether by stock dividend, stock split, combination of shares or otherwise, which results in a proportionate increase or decrease in the number of shares of Common Stock theretofore issued and outstanding, the number of shares which are reserved for issuance under the Plan and the number of shares which, at such time, are subject to Options shall, to the extent deemed appropriate by the Committee, be increased or decreased in the same proportion, provided, however, that the Company shall not be obligated to issue fractional shares. Likewise, in the event of any change in the outstanding shares of Common Stock by reason of any recapitalization, merger, consolidation, reorganization, combination or exchange of shares or other corporate change, the Committee shall make such substitution or adjustments, if any, as it deems to be appropriate, as to the number or kind of shares of Common Stock or other securities which are reserved for issuance under the Plan and the number of shares or other securities which, at such time are subject to Options. In the event of a Change in Control, at the option of the Board or Committee, (a) all options outstanding on the date of such Change in Control shall, for a period of sixty (60) days following such Change in Control, become immediately and fully exercisable, and (b) an optionee will be permitted to surrender for cancellation within sixty (60) days after such Change in Control any option or portion of an option which was granted more than six (6) months prior to the date of such surrender, to the extent not yet exercised, and to receive a cash payment in an amount equal to the excess, if any, of the Fair Market Value (on the date of surrender) of the shares of Common Stock subject to the option or portion thereof surrendered, over the aggregate purchase price for such Shares under the option. 1.7 Non-Alienation of Benefits Except as herein specifically provided, no right or unpaid benefit under the Plan shall be subject to alienation, assignment, pledge or charge and any attempt to alienate, assign, pledge or charge the same shall -3- be void. If any Participant or other person entitled to benefits hereunder should attempt to alienate, assign, pledge or charge any benefit hereunder, then such benefit shall, in the discretion of the Committee, cease. 1.8 Withholding or Deduction for Taxes If, at any time, the Company or any Subsidiary or Affiliate is required, under applicable laws and regulations, to withhold, or to make any deduction for any taxes, or take any other action in connection with any Option exercise, the Participant shall be required to pay to the Company or such Subsidiary or Affiliate, the amount of any taxes required to be withheld, or, in lieu thereof, at the option of the Company, the Company or such Subsidiary or Affiliate may accept a sufficient number of shares of Common Stock to cover the amount required to be withheld. 1.9 Administrative Expenses The entire expense of administering the Plan shall be borne by the Company. 1.10 General Conditions a. The Board or the Committee may, from time to time, amend, suspend or terminate any or all of the provisions of the Plan, provided that, without the Participant's approval, no change may be made which would prevent an Incentive Stock Option granted under the Plan from qualifying as an Incentive Stock Option under Section 422 of the Code or result in a "modification" of the Incentive Stock Option under Section 424(h) of the Code or otherwise alter or impair any right theretofore granted to any Participant ; and further provided that, without the consent and approval of the holders of a majority of the outstanding shares of Common Stock of the Company present at a meeting at which a quorum exists, neither the Board nor the Committee may make any amendment which (i) changes the class of persons eligible for options; (ii) increases (except as provided under Section 1.6 above) the total number of shares or other securities reserved for issuance under the Plan; (iii) decreases the minimum option prices stated in Section 2.2 hereof (other than to change the manner of determining Fair Market Value to conform to any then applicable provision of the Code or any regulation thereunder); (iv) extends the expiration date of the Plan, or the limit on the maximum term of Options; or (v) withdraws the administration of the Plan from a committee consisting of two or more members, each of whom is a non-employee director. b. With the consent of the Participant affected thereby, the Committee may amend or modify any outstanding Option in any manner not inconsistent with the terms of the Plan, including, without limitation, and irrespective of the provisions of Sections 2.3(c) and 2.4(b) below, to accelerate the date or dates as of which an installment of an Option becomes exercisable. c. Nothing contained in the Plan shall prohibit the Company or any Subsidiary or Affiliate from establishing other additional incentive compensation arrangements for employees of the Company or such Subsidiary or Affiliate. d. Nothing in the Plan shall be deemed to limit, in any way, the right of the Company or any Subsidiary or Affiliate to terminate a Participant's employment with the Company (or such Subsidiary or Affiliate) at any time. -4- e. Any decision or action taken by the Board or the Committee arising out of or in connection with the construction, administration, interpretation and effect of the Plan shall be conclusive and binding upon all Participants and any person claiming under or through any Participant. f. No member of the Board or of the Committee shall be liable for any act or action, whether of commission or omission, (i) by such member except in circumstances involving actual bad faith, nor (ii) by any other member or by any officer, agent or employee. 1.11 Compliance with Applicable Law Notwithstanding any other provision of the Plan, the Company shall not be obligated to issue any shares of Common Stock, or grant any Option with respect thereto, unless it is advised by counsel of its selection that it may do so without violation of the applicable Federal and State laws pertaining to the issuance of securities and the Company may require any stock certificate so issued to bear a legend, may give its transfer agent instructions limiting the transfer thereof, and may take such other steps, as in its judgment are reasonably required to prevent any such violation. 1.12 Effective Dates The Plan was adopted by the Board on May 1, 1997. The Plan shall terminate on April 30, 2007. Section 2. OPTION GRANTS 2.1 Authority of Committee Subject to the provisions of the Plan, the Committee shall have the sole and complete authority to determine (i) the Participants to whom Options shall be granted; (ii) the number of shares to be covered by each Option; and (iii) the conditions and limitations, if any, in addition to those set forth in Sections 2 and 3 hereof, applicable to the exercise of an Option, including without limitation, the nature and duration of the restrictions, if any, to be imposed upon the sale or other disposition of shares acquired upon exercise of an Option. Stock options granted under the Plan may be of two types: an incentive stock option ("Incentive Stock Option"); and a non-qualified stock option ("Non-Qualified Stock Option"). It is intended that the Incentive Stock Options granted hereunder shall constitute incentive stock options within the meaning of Section 422 of the Code and shall be subject to the tax treatment described in Section 422 of the Code. Anything in the Plan to the contrary notwithstanding, no provision of the Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify either the Plan or, without the consent of the optionee, any Incentive Stock Option under Section 422 of the Code. -5- The Committee shall have the authority to grant Incentive Stock Options, or to grant Non-Qualified Stock Options, or to grant both types of Options. To the extent that any Option does not qualify as an Incentive Stock Option, in whole or in part, it shall constitute a separate Non-Qualified Stock Option to the extent of such disqualification. 2.2 Option Exercise Price The price of stock purchased upon the exercise of Options granted pursuant to the Plan shall be the Fair Market Value thereof at the time that the Option is granted. If an employee owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Code) more than 10% of the combined voting power of all classes of the stock of the Company or any parent corporation of the Company or Subsidiary and an Option granted to such employee is intended to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code, the exercise price shall be no less than 110% of the Fair Market Value of the Common Stock on the date the Option is granted. The purchase price is to be paid in full in cash, certified or bank cashier's check or, at the option of the Company, Common Stock valued at its Fair Market Value on the date of exercise, or a combination thereof, when the Option is exercised and stock certificates will be delivered only against such payment. 2.3 Incentive Stock Option Grants Each Incentive Stock Option will be subject to the following provisions: a. Term of Option An Incentive Stock Option will be for a term of not more than ten years from the date of grant, except in the case of an employee described in the second paragraph of Section 2.2 above in which case an Incentive Stock Option will be for a term of not more than five years from the date of the grant. b. Annual Limit To the extent the aggregate Fair Market Value of the Common Stock (determined as of the date of grant) with respect to which any options granted hereunder are intended to be designated as Incentive Stock Options under the Plan (or any other incentive stock option plan of the Company or any Subsidiary) which may be exercisable for the first time by the optionee in any calendar year exceeds $100,000, such options shall not be considered incentive stock options. c. Exercise Subject to the power of the Committee under Section 1.10(b) above and except in the manner described below upon the death of the optionee, an Incentive Stock Option may be exercised only in installments as follows: up to one-half of the subject shares on and after the first anniversary of the date of grant, up to all of the subject shares on and after the second such anniversary of the date of the grant of such Option but in no event later than the expiration of the term of the Option. -6- An Incentive Stock Option shall be exercisable during the optionee's lifetime only by the optionee and shall not be exercisable by the optionee unless, at all times since the date of grant and at the time of exercise, such optionee is an employee of the Company, any parent corporation of the Company or any Subsidiary, except that, upon termination of all employment (other than by death, Total Disability, or by Total Disability followed by death in the circumstances provided below) with the Company, any parent corporation of the Company and any Subsidiary or Affiliate, the optionee may exercise an Incentive Stock Option at any time within three months thereafter but only to the extent such Option is exercisable on the date of such termination. Upon termination of all employment by Total Disability, the Optionee may exercise such options at any time within one year thereafter, but only to the extent such option is exercisable on the date of such termination. In the event of the death of an optionee (i) while an employee of the Company, any parent corporation of the Company or any Subsidiary or Affiliate, or (ii) within three months after termination of all employment with the Company, any parent corporation of the Company and any Subsidiary or Affiliate (other than for Total Disability) or (iii) within one year after termination on account of Total Disability of all employment with the Company, any parent corporation of the Company and any Subsidiary or Affiliate, such optionee's estate or any person who acquires the right to exercise such option by bequest or inheritance or by reason of the death of the optionee may exercise such optionee's Option at any time within the period of three years from the date of death. In the case of clauses (i) and (iii) above, such Option shall be exercisable in full for all the remaining shares covered thereby, but in the case of clause (ii) such Option shall be exercisable only to the extent it was exercisable on the date of such termination. Notwithstanding the foregoing provisions regarding the exercise of an Option in the event of death, Total Disability or other termination of employment, in no event shall an Option be exercisable in whole or in part after the termination date provided in the Option. d. Transferability An Incentive Stock Option granted under the Plan shall not be transferable otherwise than by will or by the laws of descent and distribution. 2.4 Non-Qualified Stock Option Grants Each Non-Qualified Stock Option will be subject to the following provisions: a. Term of Option A Non-Qualified Stock Option will be for a term of not more than ten years from the date of grant. -7- b. Exercise The exercise of a Non-Qualified Stock Option shall be subject to the same terms and conditions as provided under Section 2.3(c) above except that (i) upon termination of all employment by Total Disability, the Optionee may exercise such options at any time within three years thereafter and (ii) in the event of the death of an Optionee within three years after termination on account of Total Disability of all employment with the Company, or any subsidiary or affiliate, such Optionee's estate or any person who acquires the right to exercise such option by bequest or inheritance or by reason of the death of the Optionee may exercise such Optionee's option at any time within a period of three years from the date of death. c. Transferability A Non-Qualified Stock Option granted under the Plan shall not be transferable otherwise than by will or by the laws of descent and distribution, except as may be permitted by the Board or the Committee. 2.5 Agreements In consideration of any Options granted to a Participant under the Plan, each such Participant shall enter into an Option Agreement with the Company providing, consistent with the Plan, such terms as the Committee may deem advisable. -8- EX-10 3 10.2 EMPLOYMENT AGREEMENT--LEE N. BLATT Exhibit 10.2 EMPLOYMENT AGREEMENT AGREEMENT made as of this 1st day of January 1997, by and between HERLEY INDUSTRIES, INC., a Delaware corporation (hereinafter called the "Company"), and LEE N. BLATT, residing at 471 North Arrowhead Trail Vero Beach, Fl 32963, (hereinafter called the "Employee"). WITNESSETH WHEREAS, the Employee has been employed by the Company under an employment agreement dated June 11, 1984 as amended; and the Company desires to enter into a new employment agreement with Employee; and, WHEREAS, Employee desires to enter into the new employment agreement with the Company; NOW THEREFORE, it is agreed as follows: 1. PRIOR AGREEMENTS SUPERSEDED. This Agreement supersedes any employment agreements, oral or written, entered into between Employee and the Company prior to the date of this Agreement. 2. RETENTION OF SERVICES. The Company hereby retains the services of Employee, and Employee agrees to furnish such services, upon the terms and conditions hereinafter set forth. 3. TERM. Subject to earlier termination on the terms and conditions hereinafter provided, the term of this Agreement shall be comprised of a 6 six year period of employment commencing January 1, 1997 and ending December 31, 2002. On each January 1, the term of the Employment Agreement shall extend to six years from that date. In no event shall the term of the Employment Agreement extend beyond December 31, 2006. 4. DUTIES AND EXTENT OF SERVICES DURING PERIOD OF EMPLOYMENT. During the period of employment, Employee shall be employed as a Senior Executive of the Company. In such capacity, Employee agrees that he shall serve the Company under the direction of the Board of Directors of the Company to the best of his ability, shall perform all duties incident to his offices on behalf of the Company, and shall perform such other duties as may from time to time be assigned to him by the Board of Directors of the Company. 1 of 8 Employee shall also serve in similar capacities of such of the subsidiary corporations of the Company as may be selected by the Board of Directors and shall be entitled to such additional compensation therefore as may be determined by the Board of Directors of the Company. Notwithstanding the foregoing, it is understood and agreed that the duties of Employee during the period employment shall not be inconsistent with (i) his position and title as Senior Executive of the Company; or (ii) with those duties ordinarily performed by a comparable executive officer. 5. REMUNERATION. During the period of employment, Employee shall be entitled to receive the following compensation for his services: i) The Company shall pay to Employee an annual salary at the rate of FOUR HUNDRED SEVENTY-FIVE THOUSAND ($475,000) DOLLARS commencing January 1, 1997, payable in weekly installments, or in such other manner as shall be agreeable to the Company and Employee. ii) In addition to his salary set forth in Paragraph 5(i) above, Employee shall receive an increment in an amount equal to the greater of (a) the cumulative cost of living on his base salary as reported in the "Consumer Price Index, New York Northeastern New Jersey, all items", published by the United States Department of Labor, Bureau of Labor Statistics, using January 1,1996 as the base year for computation, or (b) 10% of his annual salary for the year then ending. Such cost of living increment with respect to the aforesaid salary of Employee shall be made semi-annually as follows: A. With respect to the first six months of each calendar year during the period of employment, such increment shall be calculated and payable cumulatively on or before the first day of August of such year; and B. With respect to the last six months of each calendar year during the period of employment, such increment shall be calculated and payable cumulatively on or before the first day of February of the following calendar year. If Employee's employment shall terminate during any six-month period referred to in this Paragraph 5 (ii), then the cost of living increment provided for herein shall be prorated accordingly. 2 of 8 iii) Not later than one hundred twenty (120) days after the end of the fiscal year of the Company and each subsequent fiscal year of the Company ending during the period of employment, the Company shall pay to Employee, as incentive compensation an amount equal to a bonus at the discretion of the Board of Directors but in no event less than five (5%) percent of the Consolidated Pretax Earnings of the Company. For purposes hereof, the term "Consolidated Pretax Earnings" of the Company shall mean, with respect to any fiscal year, the consolidated income, if any, of the Company for such fiscal year as set forth in the audited, consolidated financial statements of the Company and its subsidiaries included in its Annual Report to stockholders for such fiscal year, before deduction of taxes based on income or of the incentive compensation to be paid to Employee for such fiscal year under this Agreement." 6. EMPLOYEE BENEFITS - EXPENSES a) Commencing January 1, 1997 and during the term of this agreement, the Company shall provide, at its expense up to $40,000 annually to purchase life insurance in the face amount of $4,000,000, with Employee having the right to designate the insurer, owner and beneficiary of such life insurance. b) In the event of the death of Employee, within 30 days thereafter the Company shall promptly make a lump sum payment to Employee's widow, or to such other person or persons as may be designated by Employee in his Will, or to his estate in the event of Employee's intestacy, of the salary and compensation to which Employee is entitled hereunder for the three year period from date of death and one-half of such salary for the balance of the period covered by this Agreement, and in the year of death an additional payment equal to the pro rata amount for said year of the compensation set forth in paragraph 5 (iii), the Company's contribution to the 401(k), and the pro-rata cost of living increment, which additional payment shall be made in accordance with paragraph 5 (ii). c) During the period of employment, Employee shall be eligible to participate in the Company's stock option and stock purchase plans to the extent determined in the sole discretion of the Board of Directors of the Company or a committee thereof. 3 of 8 d) During the period of employment, Employee shall be furnished with office space and facilities commensurate with his position and adequate for the performance of his duties; he shall be provided with the perquisites customarily associated with the position of a Senior Executive of the Company; and he shall be entitled to six weeks regular vacation during each year. e) It is contemplated that, during the period of employment, Employee may be required to incur out-of-pocket expenses in connection with the performance of his services hereunder, including expenses incurred for travel and business entertainment. Accordingly, the Company shall pay, or reimburse Employee, for all out-of-pocket expenses reasonably incurred by Employee in the performance of his duties hereunder in accordance with the usual procedures of the Company. Notwithstanding the foregoing, the recognition that Employee will be required during the term of this Agreement to do a considerable amount of driving in connection with his services hereunder, the Company shall provide Employee with the use of a suitable automobile and all expenses incidental throughout the term of this Agreement, including fuel, repairs, maintenance and insurance. f) All benefits to Employee specially provided for herein shall be in addition to, and shall not diminish, (i) such other benefits and/or compensation as may hereafter be granted to or afforded to Employee by the Board of Directors of the Company; and (ii) any rights which Employee may have or may acquire under any hospitalization, life insurance, pension, profit-sharing, incentive compensation or other present or future employee benefit plan or plans of the Company g) Employee currently works from offices in Lancaster, Pennsylvania and from his homes where he has created work space and his responsibilities do not require regular attendance at any Company office. These responsibilities include, among other things, conducting executive recruiting tasks and visiting customers, investment banks and potential acquisition candidates in the best interests of the Company. In recognition of these special employment conditions, disability for Employee shall occur if he becomes unable, for twelve consecutive 4 of 8 months or more, due to ill health or other incapacity to perform the services described above. In that event, the Company may thereafter, upon at least 90 days written notice to employee, place him on disability status and terminate this agreement. If employee is so determined by the Company as disabled, he shall be entitled to his annual compensation as set forth in paragraph 5 (i) and 5 (ii) hereof payable in weekly installments for the first two years after notice of disability and thereafter one-half of such compensation payable in weekly installments for the balance of the period covered by this agreement. 7. NON-COMPETITION. Employee agrees that, during term of this Agreement, he will not, without the prior written approval of the Board of Directors of the Company, directly or indirectly through any other individual or entity,(a) become an officer or employee of, or render any services to, any competitor of the Company, (b) solicit, raid, entice or induce any customer of the Company to cease purchasing goods or services from the Company or to become a customer of any competitor of the Company, and Employee will not approach any customer for any such purpose or authorize the taking of any such actions by any other individual or entity, or (c) solicit, raid, entice or induce any employee of the Company to become employed by any competitor of the Company, and Employee will not approach any such employee for any such purpose or authorize the taking of any such action by any other individual or entity. However, nothing contained in this paragraph 7 shall be construed as preventing Employee from investing his assets in such form or manner as will not require him to become an officer or employee of, or render any services (including consulting services) to, any competitor of the Company. 8. TERMINATION FOR CAUSE. a) The Company has been intimately familiar with the ability, competence and judgment of Employee, which are acknowledged to be of the highest caliber. Accordingly, the Company and Employee agree that Employee's services hereunder may be terminated by the Company only (i) for an act of moral turpitude materially adversely affecting the financial condition of the Company, or (ii) breach of the terms of this Agreement which shall materially adversely affect the financial condition of the Company. 5 of 8 b) If the Company terminates Employee's employment hereunder for any reason other than as set forth in paragraph 8 (a) hereof, Employee's compensation shall continue to be paid to him as provided in paragraph 5 hereunder for the remainder of the term of this Agreement. Employee shall have no duty to mitigate the Company's damages hereunder. Therefore, no deduction shall be made by the Company for any compensation earned by Employee from other employment or for monies or property otherwise received by Employee subsequent to such termination of his employment hereunder. Employee and the Company acknowledge that the foregoing provisions of this paragraph 8(b) are reasonable and are based upon the facts and circumstances of the parties at the time of entering into this Agreement, and with due regard to future expectations. 9. CONSOLIDATION OR MERGER. In the event of any consolidation or merger of the Company into or with any other corporation during the term of this Agreement, or the sale of all or substantially all of the assets of the Company to another corporation during the term of this Agreement, such successor corporation shall assume this Agreement and become obligated to perform all of the terms and provisions hereof applicable to the Company, and Employee's obligations hereunder shall continue in favor of such successor corporation. 10. INDEMNIFICATION. The Company agrees to indemnify the Employee to the fullest extent permitted by applicable law consistent with the Company's Certification of Incorporation and By-Laws as in effect on the effective date of this Agreement with respect to any action or failure to act on his part while he was an officer, director and/or employee (a) of the Company or any subsidiary thereof or (b) of any other entity if his service with such entity was at the request of the Company. This provision shall survive the termination of this Agreement. 11. NOTICES. Notice is to be given hereunder to the parties by telegram or by certified or registered mail, addressed to the respective parties at the addresses herein below set forth or to such addresses as may be hereinafter furnished, in writing: TO: Lee N. Blatt 481 North Arrowhead Trail Vero Beach, FL 32963 6 of 8 TO: HERLEY INDUSTRIES, INC. 10 Industry Drive Lancaster, PA 17603 Attention: Myron Levy, President 12. CHANGE OF CONTROL In the event there shall be a change in the present control of the Company as hereinafter defined, or in any person directly or indirectly presently controlling the Company, as hereinafter defined, Employee shall have the right to immediately receive as a lump sum payment an amount equal to (i) two (2) times his "base amount", within the meaning of Section 280G of the Internal Revenue Code of 1954, as amended (hereinafter "the Code"), reduced by (ii) $100.00. For purposes of this Agreement, a change in control of the Company, or in any person directly or indirectly controlling the Company, shall mean: a) a change in control as such term is presently defined in Regulation 240.12b-2 under the Securities Exchange Act of 1934 ("Exchange Act"); or b) if any "person" (as such term is used in Section 13(d) and 14 (d) of the Exchange Act) other than the Company or any "person" who on the date of this Agreement is a director or officer of the Company, becomes the "beneficial owner" (as defined in Rule 13(d)-3 under the Exchange Act), directly or indirectly, of securities of the Company representing thirty percent (30%) of the voting power of the Company's then outstanding securities; or c) if during any period of two (2) consecutive years during the term of this Agreement, individuals who at the beginning of such period constitute the Board of Directors cease for any reason to constitute at least a majority thereof, unless the election of each director who is not a director at the beginning of such period has been approved in advance by directors representing at least two-thirds (2/3) of the directors then in office who were directors at the beginning of the period. 13. SUCCESSORS AND ASSIGNS. This agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Unless clearly inapplicable, reference herein to the Company shall be deemed to include such other successor. In addition, this Agreement shall be binding upon and inure to the benefits of the Employee and his heirs, executors, legal 7 of 8 representatives and assigns, provided, however, that the obligations of Employee hereunder may not be delegated without the prior written approval of Directors of the company. 14.AMENDMENTS. This agreement may not be altered, modified, amended or terminated except by a written instrument signed by each of the parties hereto. 15. GOVERNING LAW. This agreement shall be governed by and construed and interpreted in accordance with the laws of Delaware, without reference to principles of conflict of laws. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. HERLEY INDUSTRIES, INC. BY: ______________________________ MYRON LEVY, President BY: ______________________________ LEE N BLATT, Employee 8 of 8 EX-10 4 10.3 EMPLOYMENT AGREEMENT--MYRON LEVY Exhibit 10.3 EMPLOYMENT AGREEMENT AGREEMENT made as of this 1st day of January 1997, by and between HERLEY INDUSTRIES, INC., a Delaware corporation (hereinafter called the "Company"), and MYRON LEVY residing at 147 Deer Ford Drive, Lancaster PENNSYLVANIA 17603 (hereinafter called the "Employee"). WITNESSETH WHEREAS, the Employee has been employed by the Company under an employment agreement dated October 3, 1988 as amended; and the Company desires to enter into a new employment agreement with Employee; and, WHEREAS, Employee desires to enter into the new employment agreement with the Company; NOW THEREFORE, it is agreed as follows: 1. PRIOR AGREEMENTS SUPERSEDED. This Agreement supersedes any employment agreements, oral or written, entered into between Employee and the Company prior to the date of this Agreement. 2. RETENTION OF SERVICES. The Company hereby retains the services of Employee, and Employee agrees to furnish such services, upon the terms and conditions hereinafter set forth. 3. TERM. Subject to earlier termination on the terms and conditions hereinafter provided, the term of the Agreement shall be comprised of a "period of active employment" commencing on January 1, 1997 and ending on December 31, 2002 (subject to extension by agreement of the Company and Employee) and a "consulting period" commencing at the end of the period of active employment (as the same may be extended) and continuing for a period of five (5) years. On January 1 of each year, the term of the Employment Agreement shall extend to six years from that date. In no event shall the term of the Employment Agreement extend beyond December 31, 2006. 1 of 8 4. DUTIES AND EXTENT OF SERVICES DURING PERIOD OF EMPLOYMENT (a) During the period of active employment, Employee shall be employed as an executive of the Company. In such capacity, Employee agrees that he shall serve the Company under the direction of the Chief Executive Officer of the Company to the best of his ability, shall devote full time during normal business hours to such employment, shall perform all duties incident to his offices on behalf of the Company, and shall perform such other duties as may from time to time be assigned to him by the Chief Executive Officer of the Company. (b) Effective with the termination of the period of active employment, Employee shall cease to be an employee of the Company. However, in recognition of the continued value to the Company of Employee's extensive knowledge and expertise, Employee shall serve as a consultant to the Company during the consulting period. In such capacity, Employee shall consult with the Company and its respective senior executive officers with respect to its respective businesses and operations. Such consulting services shall not require more than fifty (50) days in any one year, it being understood and agreed that during the consulting period Employee shall have the right to undertake full time or part time employment with any business enterprise which is not a competitor of the Company. Employee's services as a consultant to the Company shall be required at such times and such places as shall result in the least inconvenience to Employee, having in mind his other business commitments which may obligate him to perform services prior to the performance of his services hereunder. To the end that there shall be a minimum of interference with Employees other commitments, his consulting services shall be rendered by personal consultation at his residence or office wherever maintained, or by correspondence through mail, telegram or telephone, or other similar modes of communications at times, including weekends and evenings, most convenient to him. During the consulting period, Employee shall not be obligated to serve as a member of the Board of Directors of the Company or to occupy any office on behalf of the Employer or any of its subsidiaries or affiliates. 5. REMUNERATION (a) During the period of active employment, Employee shall be entitled to receive the following compensation for his services: (i) The Company shall pay to Employee an annual salary at the rate of TWO HUNDRED SEVENTY-FIVE THOUSAND ($275,000) DOLLARS commencing January 1, 1997, payable in weekly installments, or in such other manner as shall be agreeable to the Company and Employee. 2 of 8 (ii) In addition to his salary set forth in Paragraph 5(i) above, Employee shall receive an increment in an amount equal to the greater of (a) the cumulative cost of living on his base salary as reported in the "Consumer Price Index, New York Northeastern New Jersey, all items", published by the United States Department of Labor, Bureau of Labor Statistics, using January 1,1996 as the base year for computation, or (b) 10% of his annual salary for the year then ending. Such cost of living increment with respect to the aforesaid salary of Employee shall be made semi-annually as follows: (A) With respect to the first six months of each calendar year during the period of employment, such increment shall be calculated and payable cumulatively on or before the first day of August of such year; and (B) With respect to the last six months of each calendar year during the period of employment, such increment shall be calculated and payable cumulatively on or before the first day of February of the following calendar year. If Employee's employment shall terminate during any six-month period referred to in this Paragraph 5 (ii), then the cost of living increment provided for herein shall be prorated accordingly. (iii)Not later than one hundred twenty (120) days after the end of the fiscal year of the Company and each subsequent fiscal year of the Company ending during the period of employment, the Company shall pay to Employee, as incentive compensation an amount equal to a bonus at the discretion of the Board of Directors but in no event less than three (3%) percent of the Consolidated Pretax Earnings of the Company. For purposes hereof, the term "Consolidated Pretax Earnings" of the Company shall mean, with respect to any fiscal year, the consolidated income, if any, of the Company for such fiscal year as set forth in the audited, consolidated financial statements of the Company and its subsidiaries included in its Annual Report to stockholders for such fiscal year, before deduction of taxes based on income or of the incentive compensation to be paid to Employee for such fiscal year under this Agreement." 3 of 8 (b)During the consulting period, Employee shall be entitled to a consulting fee at the rate of SIXTY THOUSAND ($60,000) dollars per annum, paid on a monthly basis. 6. EMPLOYEE BENEFITS - EXPENSES a) During the period of active employment, Employee shall receive all fringe benefits in the nature of health, medical, life and/or other insurance, a Company car and related expenses as received by other officers of the Company. b) The Company shall reimburse Employee for all proper expenses incurred by him, including disbursements made in the performance of his duties to the Company; provided, however that no extraordinary expenses and/or disbursements shall be incurred by Employee without the prior approval of the Chief Executive Officer or the Board of Directors of the Company. c) During the period of employment, Employee shall be eligible to participate in the Company's stock option and stock purchase plans to the extent determined in the sole discretion of the Board of Directors of the Company or a committee thereof. d) During the period of employment, Employee shall be furnished with office space and facilities commensurate with his position and adequate for the performance of his duties; he shall be provided with the perquisites customarily associated with the position of a Senior Executive of the Company; and he shall be entitled to six weeks regular vacation during each year. e) In the event of the death of Employee, within 30 days thereafter the Company shall promptly make a lump sum payment to Employee's widow, or to such other person or persons as may be designated by Employee in his Will, or to his estate in the event of Employee's intestacy, of the salary and compensation to which Employee is entitled hereunder for the two year period from date of death and one-half of such salary for the balance of the period covered by this Agreement, and in the year of death an additional payment equal to the pro rata amount for said year of the compensation set forth in paragraph 5 (iii), the Company's contribution to the 401(k), and the pro-rata cost of living increment, which additional payment shall be made in accordance with paragraph 5 (ii). 4 of 8 f) Disability for Employee shall occur if he becomes unable, for twelve consecutive months or more, due to ill health or other incapacity to perform the services described above. In that event, the Company may thereafter, upon at least 90 days written notice to employee, place him on disability status and terminate this agreement. If employee is so determined by the Company as disabled, he shall be entitled to his annual compensation as set forth in paragraph 5 (i) and 5 (ii) hereof payable in weekly installments for the first two years after notice of disability and thereafter one-half of such compensation payable in weekly installments for the balance of the period covered by this agreement. 7. NON-COMPETITION. Employee agrees that, during term of this Agreement, he will not, without the prior written approval of the Board of Directors of the Company, directly or indirectly through any other individual or entity,(a) become an officer or employee of, or render any services to, any competitor of the Company, (b) solicit, raid, entice or induce any customer of the Company to cease purchasing goods or services from the Company or to become a customer of any competitor of the Company, and Employee will not approach any customer for any such purpose or authorize the taking of any such actions by any other individual or entity, or (c) solicit, raid, entice or induce any employee of the Company to become employed by any competitor of the Company, and Employee will not approach any such employee for any such purpose or authorize the taking of any such action by any other individual or entity. However, nothing contained in this paragraph 7 shall be construed as preventing Employee from investing his assets in such form or manner as will not require him to become an officer or employee of, or render any services (including consulting services) to, any competitor of the Company. 8. TERMINATION FOR CAUSE. a) The Company has been intimately familiar with the ability, competence and judgment of Employee, which are acknowledged to be of the highest caliber. Accordingly, the Company and Employee agree that Employee's services hereunder may be terminated by the Company only (i) for an act of moral turpitude materially adversely affecting the financial condition of the Company, or (ii) breach of the terms of this Agreement which shall materially adversely affect the financial condition of the Company. 5 of 8 b) If the Company terminates Employee's employment hereunder for any reason other than as set forth in paragraph 8 (a) hereof, Employee's compensation shall continue to be paid to him as provided in paragraph 5 hereunder for the remainder of the term of this Agreement. Employee shall have no duty to mitigate the Company's damages hereunder. Therefore, no deduction shall be made by the Company for any compensation earned by Employee from other employment or for monies or property otherwise received by Employee subsequent to such termination of his employment hereunder. Employee and the Company acknowledge that the foregoing provisions of this paragraph 8(b) are reasonable and are based upon the facts and circumstances of the parties at the time of entering into this Agreement, and with due regard to future expectations. 9. CONSOLIDATION OR MERGER. In the event of any consolidation or merger of the Company into or with any other corporation during the term of this Agreement, or the sale of all or substantially all of the assets of the Company to another corporation during the term of this Agreement, such successor corporation shall assume this Agreement and become obligated to perform all of the terms and provisions hereof applicable to the Company, and Employee's obligations hereunder shall continue in favor of such successor corporation. 10. INDEMNIFICATION. The Company agrees to indemnify the Employee to the fullest extent permitted by applicable law consistent with the Company's Certification of Incorporation and By-Laws as in effect on the effective date of this Agreement with respect to any action or failure to act on his part while he was an officer, director and/or employee (a) of the Company or any subsidiary thereof or (b) of any other entity if his service with such entity was at the request of the Company. This provision shall survive the termination of this Agreement. 11. NOTICES. Notice is to be given hereunder to the parties by telegram or by certified or registered mail, addressed to the respective parties at the addresses herein below set forth or to such addresses as may be hereinafter furnished, in writing: TO: Myron Levy 147 Deer Ford Drive Lancaster, PA 17601 TO: HERLEY INDUSTRIES, INC. 10 Industry Drive Lancaster, PA 17603 Attention: Lee N. Blatt, Chairman 6 of 8 12. CHANGE OF CONTROL In the event there shall be a change in the present control of the Company as hereinafter defined, or in any person directly or indirectly presently controlling the Company, as hereinafter defined, Employee shall have the right to immediately receive as a lump sum payment an amount equal to (i) two (2) times his "base amount", within the meaning of Section 280G of the Internal Revenue Code of 1954, as amended (hereinafter "the Code"), reduced by (ii) $100.00. For purposes of this Agreement, a change in control of the Company, or in any person directly or indirectly controlling the Company, shall mean: a) a change in control as such term is presently defined in Regulation 240.12b-2 under the Securities Exchange Act of 1934 ("Exchange Act"); or b) if any "person" (as such term is used in Section 13(d) and 14 (d) of the Exchange Act) other than the Company or any "person" who on the date of this Agreement is a director or officer of the Company, becomes the "beneficial owner" (as defined in Rule 13(d)-3 under the Exchange Act), directly or indirectly, of securities of the Company representing thirty percent (30%) of the voting power of the Company's then outstanding securities; or c) if during any period of two (2) consecutive years during the term of this Agreement, individuals who at the beginning of such period constitute the Board of Directors cease for any reason to constitute at least a majority thereof, unless the election of each director who is not a director at the beginning of such period has been approved in advance by directors representing at least two-thirds (2/3) of the directors then in office who were directors at the beginning of the period. 13. SUCCESSORS AND ASSIGNS. This agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Unless clearly inapplicable, reference herein to the Company shall be deemed to include such other successor. In addition, this Agreement shall be binding upon and inure to the benefits of the Employee and his heirs, executors, legal representatives and assigns, provided, however, that the obligations of Employee hereunder may not be delegated without the prior written approval of Directors of the company. 7 of 8 14. AMENDMENTS. This agreement may not be altered, modified, amended or terminated except by a written instrument signed by each of the parties hereto. 15. GOVERNING LAW. This agreement shall be governed by and construed and interpreted in accordance with the laws of Delaware, without reference to principles of conflict of laws. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. HERLEY INDUSTRIES, INC. BY: ______________________________ Lee Blatt, Chairman and CEO BY: ______________________________ Myron Levy, Employee 8 of 8 EX-10 5 10.4 PROMISSORY NOTE OF LEE N. BLATT Exhibit 10.4 NON-NEGOTIABLE PROMISSORY NOTE THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES LAW OR (ii) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH NOTE MAY BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS. $1,400,000 Lancaster, Pennsylvania No. 4 June 2, 1997 FOR VALUE RECEIVED, the undersigned, LEE N. BLATT, residing at 471 North Arrowhead Trail, Vero Beach, Florida 32903 (the "Maker"), promises to pay to HERLEY INDUSTRIES, INC., a Delaware corporation with its principal place of business at 10 Industry Drive, Lancaster, Pennsylvania 17603 ("Payee"), the principal amount of ONE MILLION FOUR HUNDRED THOUSAND ($1,400,000) DOLLARS, on or before 12:00 noon on January 31, 1998, unless renewed by the Company from year to year at 75% of the average closing price of the Company's Common Stock for the ten trading days prior thereto, without set-off or counterclaim and without any deduction or withholding, plus interest thereon at a rate determined annually equal to the average rate of interest paid by the Company for borrowed monies computed on a Company fiscal year basis. Interest shall be payable at the maturity hereof. All payments shall be applied first to pay accrued but unpaid interest, and the remainder to reduce the outstanding principal amount hereof. In no event shall the rate of interest hereunder exceed that permitted by law and if fulfillment of the obligations hereunder would violate the usury limit of applicable law, the obligations hereunder shall be automatically reduced to the limit of validity. This Note may be prepaid in whole or in part, without premium or penalty at any time. The occurrence of any one of the following events shall constitute an event of default hereunder: (a) The Maker shall fail to pay within 10 days after written notice of any failure to pay any amount due hereunder. (b) The Maker shall commence a voluntary case under the federal bankruptcy laws, shall seek to take advantage of any insolvency laws, shall make an assignment for the benefit of creditors, shall apply for, consent to or acquiesce in the appointment of, or taking possession by, a trustee, C:\WP\SEC\10Q97\EXH10 4.WPD 1 receiver, custodian or similar official or agent for itself or any substantial part of its property, or shall take any action authorizing or seeking to effect any of the foregoing. (c) A trustee, receiver, custodian or similar official or agent shall be appointed for the Maker or any substantial part of its property, or all or any substantial part of the property of the Maker is condemned, seized or otherwise appropriated by any governmental authority. (d) The Maker shall have an order or decree for relief in any voluntary or involuntary case under the federal bankruptcy laws entered against it, or any involuntary petition seeking reorganization, liquidation, readjustment, arrangement, composition, or other similar relief as to it under the federal bankruptcy laws, or any similar law for the relief of debtors, shall be brought and shall be consented to or shall remain undismissed. In the event that an event of default described in paragraph (c) or (d) above is cured by the Maker, such event shall no longer constitute an event of default. Not in limitation of any other right under any other agreement or at law or in equity, if any event of default hereunder shall have occurred the holder hereof may, upon notice to the Maker, declare all obligations under this Note to be, and thereupon the same shall become, immediately due and payable by the Maker without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Maker. The due date of this Note shall be accelerated in the event of the Maker's death or his disability, as defined and determined in the employment agreement between the Maker and the Company dated 1/1/97. In the event of death of the Maker, payment of principal and interest on this Note shall be due and payable within 60 days after the date of death. In the event of disability, as defined, payment of principal and interest on this Note shall be due and payable on the first day of the 13th month following the determination of disability. The Maker and all endorsers hereof hereby waive presentment, demand, protest, notice of protest, notice of dishonor and all other forms of demand and notice concerning this Note and consent to each and every extension or postponement of the time of payment or other indulgence with respect to this Note, and to each and every substitution, addition, exchange or release of collateral and to the addition, substitution or release of any person primarily or secondarily liable hereunder. No delay or omission by the Payee or other holder hereof in exercising any right or power hereunder shall operate as a waiver of such right or power, and a waiver on one occasion shall not be construed as a waiver or a bar to the exercise of any right on any other occasion. Any provision in this Note which is prohibited by law shall be ineffective to the extent of such prohibition without invalidating any other provision hereof. The rights and remedies of the holder of this Note as provided in this Note shall be cumulative and concurrent, and may be pursued singly, successively, or together against the Payee for the payment hereof or otherwise at the sole discretion of the Payee. The failure to exercise any such right or remedy shall in no event be construed as a waiver or release of said rights or remedies or of the right to exercise them at any time later. C:\WP\SEC\10Q97\EXH10 4.WPD 2 This Note may not be changed or terminated orally, but only by a writing signed by the Maker and the Payee. This Note may not be endorsed, assigned or transferred by the Payee without the consent of Maker. The Note shall be governed and construed under the substantive laws of the State of Pennsylvania, without regard to its conflicts of laws principles. This Note and the attached Pledge and Security Agreement constitute the entire agreement of the Maker and the Payee with respect to the indebtedness evidenced hereby. Pursuant to the terms of the Pledge and Security Agreement, Maker has collateralized this Note with 315,774 shares of the Maker's Common Stock. The Maker agrees to pay all costs, charges and expenses incurred by the Payee and its assigns (including, without limitation, costs of collection, court costs and reasonable attorneys' fees and disbursements) in connection with the enforcement of the Payee's rights under this Note. This Note supersedes and replaces Note No. 1 between the parties dated November 14, 1995 in the principal amount of $1,400,000, which prior note is hereby cancelled. Executed as a sealed instrument as of the date set forth above. Lee N. Blatt C:\WP\SEC\10Q97\EXH10 4.WPD 3 EX-10 6 10.5 PROMISSORY NOTE OF GERALD I KLEIN Exhibit 10.5 NON-NEGOTIABLE PROMISSORY NOTE THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES LAW OR (ii) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH NOTE MAY BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS. $300,000 Lancaster, Pennsylvania No. 5 June 2, 1997 FOR VALUE RECEIVED, the undersigned, GERALD I. KLEIN, residing at 845 Breneman Road, Lancaster, Pennsylvania 17545 (the "Maker"), promises to pay to HERLEY INDUSTRIES, INC., a Delaware corporation with its principal place of business at 10 Industry Drive, Lancaster, Pennsylvania 17603 ("Payee"), the principal amount of THREE HUNDRED THOUSAND ($300,000) DOLLARS, on or before 12:00 noon on January 31, 1998, unless renewed by the Company from year to year at 75% of the average closing price of the Company's Common Stock for the ten trading days prior thereto, without set-off or counterclaim and without any deduction or withholding, plus interest thereon at a rate determined annually equal to the average rate of interest paid by the Company for borrowed monies computed on a Company fiscal year basis. Interest shall be payable at the maturity hereof. All payments shall be applied first to pay accrued but unpaid interest, and the remainder to reduce the outstanding principal amount hereof. In no event shall the rate of interest hereunder exceed that permitted by law and if fulfillment of the obligations hereunder would violate the usury limit of applicable law, the obligations hereunder shall be automatically reduced to the limit of validity. This Note may be prepaid in whole or in part, without premium or penalty at any time. The occurrence of any one of the following events shall constitute an event of default hereunder: (a) The Maker shall fail to pay within 10 days after written notice of any failure to pay any amount due hereunder. (b) The Maker shall commence a voluntary case under the federal bankruptcy laws, shall seek to take advantage of any insolvency laws, shall make an assignment for the benefit of creditors, shall apply for, consent to or acquiesce in the appointment of, or taking possession by, a trustee, C:\WP\SEC\10Q97\EXH10 5.WPD 1 receiver, custodian or similar official or agent for itself or any substantial part of its property, or shall take any action authorizing or seeking to effect any of the foregoing. (c) A trustee, receiver, custodian or similar official or agent shall be appointed for the Maker or any substantial part of its property, or all or any substantial part of the property of the Maker is condemned, seized or otherwise appropriated by any governmental authority. (d) The Maker shall have an order or decree for relief in any voluntary or involuntary case under the federal bankruptcy laws entered against it, or any involuntary petition seeking reorganization, liquidation, readjustment, arrangement, composition, or other similar relief as to it under the federal bankruptcy laws, or any similar law for the relief of debtors, shall be brought and shall be consented to or shall remain undismissed. In the event that an event of default described in paragraph (c) or (d) above is cured by the Maker, such event shall no longer constitute an event of default. Not in limitation of any other right under any other agreement or at law or in equity, if any event of default hereunder shall have occurred the holder hereof may, upon notice to the Maker, declare all obligations under this Note to be, and thereupon the same shall become, immediately due and payable by the Maker without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Maker. The due date of this Note shall be accelerated in the event of the Maker's death or his disability, as defined and determined in the employment agreement between the Maker and the Company dated 1/1/92. In the event of death of the Maker, payment of principal and interest on this Note shall be due and payable within 60 days after the date of death. In the event of disability, as defined, payment of principal and interest on this Note shall be due and payable on the first day of the 13th month following the determination of disability. The Maker and all endorsers hereof hereby waive presentment, demand, protest, notice of protest, notice of dishonor and all other forms of demand and notice concerning this Note and consent to each and every extension or postponement of the time of payment or other indulgence with respect to this Note, and to each and every substitution, addition, exchange or release of collateral and to the addition, substitution or release of any person primarily or secondarily liable hereunder. No delay or omission by the Payee or other holder hereof in exercising any right or power hereunder shall operate as a waiver of such right or power, and a waiver on one occasion shall not be construed as a waiver or a bar to the exercise of any right on any other occasion. Any provision in this Note which is prohibited by law shall be ineffective to the extent of such prohibition without invalidating any other provision hereof. The rights and remedies of the holder of this Note as provided in this Note shall be cumulative and concurrent, and may be pursued singly, successively, or together against the Payee for the payment hereof or otherwise at the sole discretion of the Payee. The failure to exercise any such right or remedy shall in no event be construed as a waiver or release of said rights or remedies or of the right to exercise them at any time later. C:\WP\SEC\10Q97\EXH10 5.WPD 2 This Note may not be changed or terminated orally, but only by a writing signed by the Maker and the Payee. This Note may not be endorsed, assigned or transferred by the Payee without the consent of Maker. The Note shall be governed and construed under the substantive laws of the State of Pennsylvania, without regard to its conflicts of laws principles. This Note and the attached Pledge and Security Agreement constitute the entire agreement of the Maker and the Payee with respect to the indebtedness evidenced hereby. Pursuant to the terms of the Pledge and Security Agreement, Maker has collateralized this Note with 80,000 shares of the Maker's Common Stock. The Maker agrees to pay all costs, charges and expenses incurred by the Payee and its assigns (including, without limitation, costs of collection, court costs and reasonable attorneys' fees and disbursements) in connection with the enforcement of the Payee's rights under this Note. This Note supersedes and replaces Note No. 2 between the parties dated November 14, 1995 in the principal amount of $300,000, which prior note is hereby cancelled. Executed as a sealed instrument as of the date set forth above. Gerald I. Klein C:\WP\SEC\10Q97\EXH10 5.WPD 3 EX-10 7 10.6 PROMISSORY NOTE OF MYRON LEVY Exhibit 10.6 NON-NEGOTIABLE PROMISSORY NOTE THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES LAW OR (ii) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH NOTE MAY BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS. $300,000 Lancaster, Pennsylvania No. 6 June 2, 1997 FOR VALUE RECEIVED, the undersigned, MYRON LEVY, residing at 147 Deerford Drive, Lancaster, Pennsylvania 17601 (the "Maker"), promises to pay to HERLEY INDUSTRIES, INC., a Delaware corporation with its principal place of business at 10 Industry Drive, Lancaster, Pennsylvania 17603 ("Payee"), the principal amount of THREE HUNDRED THOUSAND ($300,000) DOLLARS, on or before 12:00 noon on January 31, 1998 unless renewed by the Company from year to year at 75% of the average closing price of the Company's Common Stock for the ten trading days prior thereto, without set-off or counterclaim and without any deduction or withholding, plus interest thereon at a rate determined annually equal to the average rate of interest paid by the Company for borrowed monies computed on a Company fiscal year basis. Interest shall be payable at the maturity hereof. All payments shall be applied first to pay accrued but unpaid interest, and the remainder to reduce the outstanding principal amount hereof. In no event shall the rate of interest hereunder exceed that permitted by law and if fulfillment of the obligations hereunder would violate the usury limit of applicable law, the obligations hereunder shall be automatically reduced to the limit of validity. This Note may be prepaid in whole or in part, without premium or penalty at any time. The occurrence of any one of the following events shall constitute an event of default hereunder: (a) The Maker shall fail to pay within 10 days after written notice of any failure to pay any amount due hereunder. (b) The Maker shall commence a voluntary case under the federal bankruptcy laws, shall seek to take advantage of any insolvency laws, shall make an assignment for the benefit of creditors, C:\WP\SEC\10Q97\EXH10 6.WPD 1 shall apply for, consent to or acquiesce in the appointment of, or taking possession by, a trustee, receiver, custodian or similar official or agent for itself or any substantial part of its property, or shall take any action authorizing or seeking to effect any of the foregoing. (c) A trustee, receiver, custodian or similar official or agent shall be appointed for the Maker or any substantial part of its property, or all or any substantial part of the property of the Maker is condemned, seized or otherwise appropriated by any governmental authority. (d) The Maker shall have an order or decree for relief in any voluntary or involuntary case under the federal bankruptcy laws entered against it, or any involuntary petition seeking reorganization, liquidation, readjustment, arrangement, composition, or other similar relief as to it under the federal bankruptcy laws, or any similar law for the relief of debtors, shall be brought and shall be consented to or shall remain undismissed. In the event that an event of default described in paragraph (c) or (d) above is cured by the Maker, such event shall no longer constitute an event of default. Not in limitation of any other right under any other agreement or at law or in equity, if any event of default hereunder shall have occurred the holder hereof may, upon notice to the Maker, declare all obligations under this Note to be, and thereupon the same shall become, immediately due and payable by the Maker without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Maker. The due date of this Note shall be accelerated in the event of the Maker's death or his disability, as defined and determined in the employment agreement between the Maker and the Company dated 1/1/97. In the event of death of the Maker, payment of principal and interest on this Note shall be due and payable within 60 days after the date of death. In the event of disability, as defined, payment of principal and interest on this Note shall be due and payable on the first day of the 13th month following the determination of disability. The Maker and all endorsers hereof hereby waive presentment, demand, protest, notice of protest, notice of dishonor and all other forms of demand and notice concerning this Note and consent to each and every extension or postponement of the time of payment or other indulgence with respect to this Note, and to each and every substitution, addition, exchange or release of collateral and to the addition, substitution or release of any person primarily or secondarily liable hereunder. No delay or omission by the Payee or other holder hereof in exercising any right or power hereunder shall operate as a waiver of such right or power, and a waiver on one occasion shall not be construed as a waiver or a bar to the exercise of any right on any other occasion. Any provision in this Note which is prohibited by law shall be ineffective to the extent of such prohibition without invalidating any other provision hereof. The rights and remedies of the holder of this Note as provided in this Note shall be cumulative and concurrent, and may be pursued singly, successively, or together against the Payee for the payment hereof or otherwise at the sole discretion of the Payee. The failure to exercise any C:\WP\SEC\10Q97\EXH10 6.WPD 2 such right or remedy shall in no event be construed as a waiver or release of said rights or remedies or of the right to exercise them at any time later. This Note may not be changed or terminated orally, but only by a writing signed by the Maker and the Payee. This Note may not be endorsed, assigned or transferred by the Payee without the consent of Maker. The Note shall be governed and construed under the substantive laws of the State of Pennsylvania, without regard to its conflicts of laws principles. This Note and the attached Pledge and Security Agreement constitute the entire agreement of the Maker and the Payee with respect to the indebtedness evidenced hereby. Pursuant to the terms of the Pledge and Security Agreement, Maker has collateralized this Note with 50,000 shares of the Maker's Common Stock. The Maker agrees to pay all costs, charges and expenses incurred by the Payee and its assigns (including, without limitation, costs of collection, court costs and reasonable attorneys' fees and disbursements) in connection with the enforcement of the Payee's rights under this Note. This Note supersedes and replaces Note No. 3 between the parties dated November 14, 1995 in the principal amount of $300,000, which prior note is hereby cancelled. Executed as a sealed instrument as of the date set forth above. Myron Levy C:\WP\SEC\10Q97\EXH10 6.WPD 3 EX-11 8 COMPUTATION OF PER SHARE EARNINGS HERLEY INDUSTRIES, INC. AND SUBSIDIARIES Exhibit 11 COMPUTATION OF PER SHARE EARNINGS
Thirteen weeks ended ------------------------------------------ May 4, 1997 April 28, 1996 --------------- ------------------ Primary Fully Diluted Primary Fully Diluted ----------- ------------- ----------- ------------- Net Income $ 1,450,567 $ 1,450,567 $ 777,477 $ 777,477 =========== =========== =========== =========== Weighted average shares outstanding: Shares outstanding from beginning of period 3,115,846 3,115,846 2,802,274 2,802,274 Shares issued for options exercised 71,942 71,942 11,326 11,326 Treasury shares acquired (57,765) (57,765) (16,608) (16,608) Common equivalents - options and warrants 383,061 383,061 222,116 222,116 Common equivalents - using period end price -- -- -- 137,794 ----------- ----------- ----------- ----------- Weighted average common and common equivalent shares outstanding 3,513,084 3,513,084 3,019,108 3,156,902 =========== =========== =========== =========== Earnings per common and common equivalent share: $ .41 $ .41 $ .26 $ .25 =========== =========== =========== =========== Forty weeks ended Thirty-nine weeks ended May 4, 1997 April 28, 1996 ----------------- ----------------------- Primary Fully Diluted Primary Fully Diluted ----------- ------------- ---------- ------------- Adjustment of net income: Net Income $ 3,101,874 $ 3,101,874 $ 2,830,457 $ 2,830,457 Add elimination of interest, net of tax benefit, under the modified treasury stock method -- -- 77,222 -- ----------- ----------- ----------- ----------- Adjusted net income $ 3,101,874 $ 3,101,874 $ 2,907,679 $ 2,830,457 =========== =========== =========== =========== Weighted average shares outstanding: Shares outstanding from beginning of period 2,936,122 2,936,122 3,015,988 3,015,988 Shares issued for options exercised 213,690 213,690 3,775 3,775 Treasury shares acquired (95,240) (95,240) (200,122) (200,122) Common equivalents - options and warrants 481,016 481,016 548,063 548,063 Common equivalents - using period end price -- -- -- 53,567 ----------- ----------- ----------- ----------- Weighted average common and common equivalent shares outstanding 3,535,588 3,535,588 3,367,704 3,421,271 =========== =========== =========== =========== Earnings per common and common equivalent share: $ .88 $ .88 $ .86 $ .83 =========== =========== =========== ===========
EX-27 9 FDS--MAY-04-1997
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE 40 WEEKS ENDED MAY 4, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS AUG-03-1997 JUL-29-1996 MAY-04-1997 627,276 0 5,734,080 0 9,107,668 19,618,351 24,335,032 12,521,281 38,318,256 8,724,544 0 0 0 310,288 23,358,907 38,318,256 23,080,159 23,080,159 15,365,629 19,648,461 0 0 443,362 3,284,274 182,400 3,101,874 0 0 0 3,101,874 0.88 0.88
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